It’s The Economy

onThursday, 25 April 2013

As the screengrab above shows Spain’s unemployment level has reached to a record high of more than six million people, a rate of 27%. Cross the Pyrenees and the story is the same as France’s unemployment has just hit a record high too. Over the Alps and Italians are trying to form a government after months of institutional crisis, the Swiss are bringing in measures to curb immigration from out-of-work migrants in Europe and the continent’s shared currency is causing headaches from Cyprus to Slovenia and beyond.

Pro cycling does not exist in a bubble and Europe’s economic woes are causing real problems for the sport, from obvious concerns like the lack of sponsors but also creating longer-term structural challenges.

TeamsFirst let’s look at the pro teams in the World Tour. Of the 19 teams, several have sugardaddy type sponsors, whether wealthy individuals or oligarch/state interests rather than pure commercial sponsors. There’s nothing wrong with this but it does hint at the lack of commercial interest. Astana, BMC Racing Team, Orica-Greenedge, Blanco Pro Cycling, Team Katusha, RadioShack-Leopard, Team Saxo Bank-Tinkoff Bank are in this club and if you wanted to be picky, you could add Omega Pharma-Quick Step with billionaire owner Zdenek Bakala and Team Sky with James Murdoch as these two squads have commercial sponsoring but there’s still an individual who is a driving force behind the team, plus the generosity of Doug Ellis has get Garmin-Sharp on the road too. Cut and count it the way you want but several teams are reliant on wealthy individuals or politicians with their hands on the state’s purse for funding.

Looking ahead Blanco is searching for a sponsor, Vacansoleil is reviewing weather to stay in the sport and Radioshack is pulling out. Hopefully there’s good news for all these teams but the future is uncertain. These problems are, for want of a better word, cyclical. In other words sponsors can come and go with the state of the economy, marketing budgets grow when consumer activity is buoyant. But there are structural problems here too, for starters the spectre of doping scares some corporate backers but the complicated team licensing process deters others. As readers of my column in 2r Magazine might know, sponsors want to know the entry price to ride the Tour de France and the UCI’s World Tour licencing process is a moving target process.

Vanishing Races
Another problem is the shrinking programme of races. I’ve lost count of the number of times I’ve had to edit the calendar for 2013, whether it’s shrinking stages races in Spain which get their duration cut, or worse, pressing the “delete event” button for an Italian race. Again there are cyclical problems, when times are tight then sponsors are harder to find. But there’s an asymmetry here because once the economy recovers the races often don’t. Over the years many events have vanished, never to return.

There are other headwinds. If corporate sponsors have less money then the same is true of governments where belts are being tightened. Many smaller races rely on local funding and have been seen as a promotional tool for a region or a town. But when faced with decisions on what spending to cut, sporting and cultural events are relatively easy to chop compared to, say, closing a local school. This shortage of funding is probably the most regular explanation for the vanishing number of races in Italy.

Another factor is tax, the scramble to patch budget deficits has meant a lot untaxed areas have now become taxed. In Italy this means fuel taxes have risen substantially – it’s hard to evade paying or get creative the pump – and it’s another big cost for the sport. Similarly tighter controls in Spain are seeing races subject to closer financial scrutiny and this means having to pay taxes on their activities, the informal practices of the past aren’t as easy.

As cheap as chips

Cutbacks are felt elsewhere too, for example French races had enjoyed police protection charged at the hourly tariff due of €2.40. There were plans to raise this to €14 an hour to reflect the “real” cost. But this would have meant an increase in the police costs of €80,000 for a race like the Tour du Limousin and even ASO was worried, with Jean-François Pescheux saying “The Tour will be ok but what will happen to other races like Paris-Nice?” But successful lobbying by the French Cycling Federation and the Ligue Natio­nale de Cyclisme, a pro cycling group managed to limit the rise.

Is there any good news?
It’s important to note that the shrinking economies in Europe are still wealthy. For all the bad news there’s still a strong calendar of events, indeed a management consultant tasked with assessing the sport might even say there are too many clashing events.

Besides not everything is faring badly in Europe, Poland has escaped the recession and data out this morning showed the UK economy is growing, just and Londoners get a new event this summer on the same course as the Olympic road race last July. Norway gets two new races. And if the Spanish unemployment numbers shock, note a share of those unemployed might be working informally so the headline number can be scarier than the reality on the ground.

The UCI ProTour Reserve fund accounts of 2010

There are also means to help races. The UCI has a reserve fund and much of this money has been used to launch the Tour of Beijing but in 2010 €30,000 was allocated to the GP de Plouay. There were no outlays in 2011 but I gather funding went to the Tour of the Basque Country for 2012. So there’s money available if needed to keep events going, as long as they can present a viable plan.

Well we could look beyond Europe for good news but it’s not so obvious. The UCI’s forays into China have come unstuck with the Tour of Hangzhou backfiring. The Russians are not happy with the governing body either, plans to turn the GP of Sochi into something bigger have cooled because of the dispute over the Katusha team.

But there are more races. Viewers of Eurosport will have noticed the Tour of Azerbaijan adverts with the “moving ahead” slogan and this race is building. Literally since the course will track the route of a crucial oil pipeline across the country. Much of the funding behind the race is coming from petrodollars. So where there’s new money there’s new racing, just look at the new events that have appeared in the Middle-East.

Silver lining?
Amidst the slowdown what if more people are discovering the bicycle as a means of transport? The sport’s history and heritage is full of riders who started their career on the simplest of bicycles, riding to the field, mine or factory. Times have changed but maybe increased use of bicycles will encourage more to take up the sport? That said reports from several countries show falling sales but perhaps this does not equate to falling usage?

Similarly amongst the high levels of unemployment there must be a big cohort of cyclists who now, unwillingly I stress, have more time for the sport. Assuming they can find funding to travel to races perhaps there’s a generation who will emerge at the top. In other words Spain and other countries with high unemployment might find riders excelling who would otherwise have gone into normal work in an office or construction site.

Conclusion
A lack of sponsors? Races dropping of the calendar? It’s to be expected given the broader economic problems seen in many countries where pro cycling is prevalent. Often doping gets the blame but the slump is bound to be a factor too. But if the economy picks up the sport might be different. Lost races won’t return and local subsidies might not ever flow again with such ease.

To end on a better note, cycling’s a great way to get away from it all. Yes sport could be a modern version Marx’s “opiate of the people” and when the Giro starts we should get three weeks of entertainment. But sport need not only be a distraction, it is a big creator of jobs from teams to bike shops and beyond.

“Similarly amongst the high levels of unemployment there must be a big cohort of cyclists who now, unwillingly I stress, have more time for the sport.”

I can remember the extra participation in cycling in the early eighties in UK recession. The informal “VC Dole” (Dole being unemployment benefit) weekday runs fueling some good weekend performances from those without a job. Not sure that UK Jobseekers allowance would fund much these days though.

What strikes me is that amidst all this crisis, prices for bikes, components and clothing related to the sport are still rising. Each year it gets more expensive to ride on a top-end bike, with prices rising way beyond the rest of the market. US$10,000 for a mass production frame (Cervelo R5ca)? U$250 for top end jerseys? And, if the prices are not coming down, that means the products are being sold. Hard to understand.

Felipe, cycling is fashionable at the moment, it is seen is wealthy cirlces as the ‘healthy’ equivalent of golf. The rise in sales of top end kit is a result of the growth in this group not the general increase in unemployment. Cycling is seeing the same divide between the haves and the have nots that is also visible in wider society.

Yes, I agree with you. But we’re not talking a niche segment anymore. We’re talking about a healthy group of people big enough to drive the market? Top-end products are sky rocketing, but prices are rising in all segments, from the commuter to the racing bike. Or so I get this impression. But then again, so is the disparity of wealthy in many countries.

In Australia there’s a couple of price-points (with my guesstimates of volume included):
– $500 or less (50% of sales)
– $500 to $1500 (30% of sales)
– $1500 to $4000 (15% of sales)
This is where 95% of the market is – above $4000 in Australia is a very small segment, and I imagine it’s similar in Europe and the US.
The reason you see a lot of super-high-end bikes marketed is because they have the ‘lust-factor’: advertising a $10k bike will help drive individual sales from the <$1500 segment into the <$4000 segment – even though Cervelo knows it will only ever sell a handful of $10k bikes, they also know that just having a $10k bike will mean they sell more $4k bikes than they otherwise would have.
Marketing is evil, I tell you!

If we only view costs of a cycling race then there will be many more races under threat and as a result less athletes getting involved in the sport.

Instead there should be consideration of the net benefits of a cycling event. It is an investment in immidiate tourism throught the fans and or the teams themselves in smaller races while also contributes to the future branding of the region that the race takes place. As for unemployment, creating a race is like creating any new venture, it contributes to the solution of the problem.

A great example is my home country of Greece (or even Turkey with their race currently taking place), there are high mountains, scenic roads, a good hospitality infastructure but not real international race takes place. Creating a race (as our neighbours) would contribute to the extention of the tourist season, employment opportunities and wealth creation in the regions affected by the race.

People know it’s a good place for a holiday but probably think of beaches and ancient temples. How many cyclists go there for riding? Few and it could easily try to rival other early season training camps in Majorca, the Canaries, South of France etc.

For sure Mallorca has tapped in to the MAMIL explosion. Was speaking to a hotelier there in April and the government estimates that cyclo-tourism numbers have topped 1m last year and will continue to improve. The best part about it for them as well is that most of this new tourism is in their traditionally low occupancy times of the year.

This is where the money needs to come from in the future. Sky and Rapha are tapping into it…

I’ve owned property on the Istrian Peninsula [Croatia, Slovenia, Italy] for 12 years, and have witness an explosion in the amount and duration of cyclo-tourism here. The varied terrain and micro-climate are ideal, so tourists, clubs and racing teams are on the roads year-round. 10 years ago, if 2 cyclists would encounter each other on the road, it was almost obligatory to stop, chat and maybe ride together. Now Istria resembles Veneto, Toscana or Provence as far as cycling goes. Local and state government promotion and investment can help immensely, as we are seeing now in Istria, and I think this is where Greece and other potential cycling hotspots can miss out. We used to cycle in Greece at least one weekend per month, on the mainland, but the drivers show little respect, hotels or guesthouses had no place to store bikes, and local shops and cafes had little patience for people in lycra and cycling shoes. It was the same way here in Istria 12 years ago, but the broader culture has changed rapidly to embrace cycling. I see this trend continuing in Serbia, Montenegro, Macedonia [FYROM, if you must] and Bosnia and Herzegovina, and even in Kosovo there are exponentially more cycling clubs and group rides than when I left in 2005.
We’ve visited Turkey without our bikes, but next time we will most certainly focus on biking there.
As memorable an experience as riding pro cycling’s monumental climbs can be, I think it is equally satisfying to explore as yet “undiscovered” climbs and regions. The Internet is a great place to share these special “undiscovered” routes, and all the local people, food and culture that can be the next hot cycling destination.
But Qatar, seriously?!

The nicely equipped Rc5a and similar top end BICYCLES now have retail prices higher than say a brand new Suzuki GSXR600 or Yamaha R6. Personally I think this is a complete joke. However, somebody must be buying them and sadly under some misguided belief that they will go faster! there is a lot of money sloshing about in cycling and just in the Uk alone with the likes of Sir Stuart Rose sinking some of his hard earned retirement cash into asset stripping outfits (or whatever fancy name applies) buying retail names. Meanwhile the very grassroots of cycle road racing are continuing to die as races, red tape, traffic, apathy and the growth of fun runs (sportives) all contribute.

You’re not comparing like with like. The R5Ca would be the equivalent of a track-only factory race bike from Ducati, and in both cases they are items that only generate a few sales but a lot of publicity.

You can buy a Cannondale Caad10 (or similar from Stork, Canyon, etc), build it to 6.8kgs, it’s plenty stiff, get some Chinese no name carbon tubs and off you go for probably around $2k. If you actually had the legs, you could win a World Tour race on that, no problems (Gilbert won 2010 Lombardia on a Canyon Al).

Do you know why you can buy a WT competitive bike for that little? Trickle down design and manufacturing coming from lessons learned building ‘HALO’ bikes that trickles down the Caad10s or even R3 (you can get one of those with Ultegra for $3k if you’re feeling spendy, that bike was under the butts of many of their riders in the classics this year).

THAT is the beauty of cycling. It’s the engine that matters, and that’s all up to you.

Was that actually an AL? I’d imagine it to be the CF slx. Tour magazine still claims it to be the stiffest frame in the world. You can get one with the new Ultegra (probably as good as the dura ace 6400) and Mavic Ksyrium elite wheels for around £2400 ($3800). They’d probably knock it down to £2100 at season end but you’d have trouble finding the correct frame size.

reply to “hoh”:
Yup, appearantly Gilbert wasn’t satisfied with the (shortish) geometry of the Ultimate CF at the time. Canyon has made a considerable change to (effective) top tube length increments on the 2012 Al and the Aeroad. And I guess on the brand new CF.
Last year you hardly saw any Katusha riders on Ultimates. Most were on Aeroads. This year you se them on both.

Yes, 57% is a shocking stat. Add to that the increase in the number of people who are under-employed = having to do part-time work because no full-time posts are available. As you say, personal security starts to become a concern, but not only for tourists (though they do perhaps stand out as an easy mark).
I’m not sure if there is much of a positive impact for cycling from all this – perhaps people riding to destinations rather than paying to go by some form of motorised transport. There does seem to be a movement to promote cycling in Spain (as throughout Europe) and the country has a network of ‘Green Roads’ that is far from extensive or well connected, but looks like it would be fun to try http://www.spain.info/en/reportajes/las_vias_verdes_otra_forma_de_conocer_espana.html

Excellent piece as usual.
I don’t think that cycling will ever be an equivalent of the “opium of the masses”. As your piece shows, it is too connected with social realities to represent pure escapism.
Certainly in France, the words “forçats de la route” brings us back to the working class origins of the sport, and of how the toughness of the profession parallels the difficulties encountered by the working class. You can’t watch pro-cycling and forget about it all. I mean can you?

It’s hard to view the sport in isolation of the roads and places it uses. But there’s a “bread and circus” aspect of the entertainment where the public expects action and stands beside the road in pink hats or waving giant green hands.

Cycling transforms the mundane into the epic. Maybe you can’t watch and ‘forget about it all’. But what you can do is watch and remember, dream, romanticise. The landscape and the locations become the stars. A decrepid, rural economic backwater becomes the grand stage of combat

The funny thing is that in France, Italy and especially Spain there were way, way more races in the 70s than nowadays, in an economic situation that was comparable to today’s if not downright worse (the Vuelta went almost under, but regional races continued to thrive in spite of the fact there was no TV coverage at all outside the Giro and the TdF). Hasn’t it become too expensive to organize races? Are people looking seriously at ways to cut costs, other than reducing the number of stages? I strongly suggest reducing the number of riders per race, dramatically.

When you looked beyond Europe you looked entirely the wrong way. I can think of three big name pro races in North America that didn’t exist a few years ago. the one day races in Quebec City and Montreal are growing faster than even their organizers expected, and the USPro blah-de-blah (the one in CO) is also doing well. The Tour of Utah has gotten bigger and better in the past few years.

There are dark spots, but these seem to be more due to USAC and UCI incompetence (tour of battenkill, for example) rather than a lack of participants, or money.

Well, SKY and Omega Pharma-Quickstep should be included in the list of teams supported by sugar daddies or governments (i.e., non-commercial sources) only if SKY the corporation and Omega Pharma and Quickstep do not completely cover their respective team’s budgets. The fact that each is owned by a billionaire who is the “driving force behind the team” doesn’t show that these teams are evidence of a lack of commercial interest in the sport, as Higgins noted above.

It seems to me the point was made sufficiently with your initial list. Why try so hard to add more teams to the list of non-commercially funded teams? Is there something else on your mind? 😉

A slow economy can lead to a commercial sponsor placing extra focus on “bang for buck”. With that in mind, cycling sponsorship is actually pretty cheap for a global brand compared to, say, tennis, golf, football etc.

I’d say that there are two things holding sponsorship back: (1) the doping taint and (2) the lack of coordinated broadcast media control/coverage. You really cannot under-estimate the disincentive there is for a global brand to run the risk of aligning itself with a rider or team that subsequently gets caught for doping (and I don’t buy the FESTINA story people pedal that any publicity is good publicity). Two friends of mine are CEOs of major brands, both LOVE cycling themselves, but won’t touch sponsorship of a pro team for this reason. You also want some control over how your brand will be exposed: which markets, when and to how many. Currently having no say in this side of the equation makes it a risky investment decision.

For some of the racing events under threat, one idea is to tie their future to mass participation gran fondos. This is the boom area of the sport. Let the amateurs help subsidise the pro-races by riding the same course the day before and then hang around to watch the actual race: I know this is done for some of the classics – perhaps some of the struggling Spanish races could really benefit from this, boosting tourism at the same time? The Classica San Sebastian springs to mind – how many riders from GB and elsewhere would travel there for that? What a great weekend break that would be.

I wouldn’t take too much notice of the Government-fudged figures that say the UK economy is growing. Mind you, Economic Growth is the problem really. It’s an unchallenged Religion that does very little these days except to create debt and inflation by loaning money that doesn’t exist, which in turn create more unemployment and economic contraction. How long can we keep growing on a finite planet?

In the UK we have very little in the way of resources and almost no manufacturing so we’re basing our economy on the extremely dubious Financial Sector which is full of pie in the sky derivatives and unrepayable debt. It doesn’t look good for the future of anything let alone bike racing.

It doesn’t look good because the Socialist dream of Europe doesn’t work when the demographics are imploding. Simples.

And on that note, being a child of people having been brought up in extremely difficult, post WW2 conditions in Europe, I can’t ever believe any of them having the defeatist attitude that is so ubiquitous today. They started with nothing and rolled their sleeves up…a sentiment that is sorely lacking in today’s western world.

Quite a few interesting points in the article and comments. The unemployment rate is staggering. Whether this is a result of the loss of industry manufacturing) or the knock-on effect of having an economy too dependent on luxury goods and travel, I am not nearly intelligent enough to know.

Cycling is definitely a yuppie sport, but the increased cost of clothing and goods has been disheartening. Over the last twenty years I have watched the cost of a kit, tires, etc creep up to the point that a company like Assos considers $750 a bargain for a jersey and bibs. I also remember when the best set of wheels you could buy were hand-built (still true) and purchasing a Grouppo included hubs! As much as we are seeing cycling grow, it is still not nearly a large enough sector to support itself without outside investment.

As for costs, part of the blame for the cost to run a pro team or an event needs to be placed with the system itself. Marketing has become such a massive machine and sponsor expectations such as hospitality and catering add to the budget and do not directly benefit the event. Huge buses, all the media and cars that follow a peloton are ludicrous when you stop to think about it. The sport is a victim of itself, in terms of escalating costs and the fluctuating world economy does not help.

The perfect storm has hit pro cycling for sure. Doping scandals meet world-wide economic crisis, made worse by the insane cost of fielding pro teams. Back in the golden-age of cycling (even if you argue on exactly when that was back-in-the-day, but I’m NOT talking the BigTex era!) it didn’t seem necessary to have a giant team bus (or more than one) for the riders to hide in along with all the ridiculous variations in equipment currently in use. Along with its other challenges the UCI needs to take some actions to bring the costs down. The first thing I would suggest in this vein is ditching chrono machines as is currently done in some of the fly-away races in the early season. The results of these races are not affected by the lack of these specialized machines, but the budget for purchase, upkeep and transportation of all this (mostly useless) equipment is certainly increased.

I am afraid I am old enough to remember when many pro’s rode on a minimum salary, if any, and made their mearge living from prize money. I am not suggesting a return to those conditions, BUT the business model of cycling as it stands today needs a major rethink if the future for young professionals is to be assured.

The bikes now are not so pricey. My dream bike in the late ’70s would be a Bob Jackson 531 with Campag Super Record throughout, and it would retail for around £300. My actual race bike was half that. In terms of purchasing power parity a top end bike is certainly no more expensive now, and in terms of lightness and performance….chalk and cheese. We’d pay £10 for a Clement Criterium tyre, standard race spec – and you’d need the tub cement on top of that – and you’d be lucky to get 10 events out of it if it didn’t puncture first.

The real problem is that cycling was too satisfied with its limited audience for too long – the fact that recession in a tiny number of countries has left is reeling is revealing.

But it is booming in one European country – the UK – with East Europe another growth area. Is is coincidence that a clutch of the biggest names in the sport now hail from these countries? That is an encouragement surely.